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Having An Emergency Fund

Below is an article I really liked about creating and having an emergency fund. This is a great idea and will help you when that unexpected expense comes up. You won’t have to increase your credit card debt or borrow money. It makes you feel safer and more relaxed about your finances.

One of the first things you will read when trying to get out of debt is creating an emergency fund. Some may disagree with the fact that having an emergency fund is really important, but I think it is very crucial to help your financial situation. The books and sites will tell you how important it is, but they don’t give any really good ideas on how (or where) you can get the money to create it.

How much should you put?

Ask 100 people and you will probably get 100 different answers. People who have a good emergency fund going will tell you 3-6 months of expenses while the folks that are struggling might tell you “whatever I can manage to put in savings”. I will admit that my emergency fund looks much like a big roller coaster. I would have a month’s expenses in it at some point and other times just enough to keep my savings account open.

I think the amount you should try and acquire immediately depends on where you are financially. If you are struggling with debt, a good goal would be $1,000 ( and later increase it to 3-6 months).

Why is This so critical?

Here are a few of the things that come up pretty regular for me that I tap into my emergency fund for. All of these may not apply to you, but if you are like me and your focus is getting out of debt they probably impact you too.

Stop Going Deeper In Debt – When an emergency comes up, the first thing that will take a cut will be your debt repayment or your budget. The only way you will be able to pay for the emergency is to charge it, thus digging yourself deeper into the hole we are so desperately trying to climb out of. While an emergency fund of $1,000 won’t solve all the problems, it will take care of most minor emergencies.

Unexpected Expenses – Not emergencies, but the things that come up that you have not budgeted for. These are usually small things, but enough of them will throw your budget off and you have to refractor to pay for the unexpected. With the emergency fund, your budget will continue to run smooth.

Prevent Late Fees – This one really hits home for me. We used to live pay check to pay check. We would be “borrowing from Peter to pay Paul” and either paying late fees on the bill or paying an overdraft charge at the bank. Your emergency fund will help give you that needed cushion in times like these.

Get Ahead – Once you have your emergency fund running in high gear, you can get a month ahead on your bills. You know you are sailing when you get here. Life runs much easier and the stress factor goes way down.

If you already have an emergency fund that is awesome. Maybe some of my tips below can help you grow it even larger. If you have not started one yet or don’t know how to start an emergency fund on your current budget keep on reading.

Ok, let’s state the obvious — getting started on your emergency fund is the hard part. The money is going to have to come from somewhere and, I don’t know about you, but I don’t have a money tree in my backyard that is in full bloom.

So, let’s get started.

The strategies I use to keep adding to my emergency fund:

Start with baby steps – Remember, Rome wasn’t built in a day and your emergency fund w0n’t be either. After looking at your budget determine how much you can put away each paycheck without it impacting your budget. I started out saving $50 per paycheck (I get paid twice a month so $100) per month. I didn’t have the discipline to put the money in my savings account myself, so I set up an automatic online transfer. It automatically takes out $50 on the 1st and 15th of each month an moves it into savings and I never miss it this way.

Payroll Deduction – Another option is payroll deduction. Many places of employment have credit unions and will do payroll deductions and put the money in a savings account for you. This option works really well if you have that available. The money is taken out before the check is cut and put into your account. I have this where I work and I get them to take out a little each paycheck and it really adds up fast. I don’t personally use this as an emergency fund. I use it more for helping on our family vacation expense or to help with Christmas gifts.

Treat As A Bill – If you are like us, the time you sit down and pay bills is on payday. All of the bills are paid and the rest is for gas, groceries, eating out, etc. Treat your emergency fund as a bill. The amount and frequency depends on your situation. I started with $25 per pay period or $50 per month and would just move that money into savings when we sat down to do bills.

Reduce Your Expenses – If you are like me you can find ways to cut your spending money. I had several magazine subscriptions, trips to Star Bucks and lots of gizmos and gadgets that I really did not need, I just thought I did. Whatever you decide to cut out, take that same amount and put that into your emergency fund.

Save the Cents – My bank doesn’t offer this, but I have a friend that uses this method. His bank has a feature where they round all your purchases up to the nearest dollar on all purchases. So if he spends $15.25 on an item, they will round it up to $16.00 in his registry and put the remainder in savings. He has saved quite a bit of money by using this feature. I am considering doing this manually, but have not quite figured out how I will do it because I use my debit card for everything.

Your Christmas Bonus Or tax refund – These unexpected bonuses are a great time to add to your emergency fund.

Save Dollar Bills – This goes along the same line as the saving the change. If you are the type of person that uses cash for most things, you can put away some money by saving your dollar bills after you break a larger bill. Just put the dollars in an envelope, your piggy bank or whatever and watch it start to accumulate.

Auto Insurance – I have an old Ford Explorer that I was still carrying full coverage on. Switching it to liability only saved me a few hundred dollars. If you can switch to liability only, this will be a definite savings.

Once you get your emergency fund established, you will be well on your way to living frugal. I must warn you that it is not east to start living a simpler, frugal life though. The learning curve is steep and the price for failure is high. Please join me on my blog and lets get frugal together.

Join me on my quest as I learn to become more frugal, save money and pinch a penny until it screams — Penny Pinching

My husband and I decided to have an emergency fund. I sometimes forget it is even there, which is a good thing. But there is a sense of security knowing that you have some money laid aside to handle any emergencies.

If you have any suggestions on how to add money to an emergency fund, tell us about it in the comments.